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Home Publications In local government world, it’s easy for reforms to make things worse

In local government world, it’s easy for reforms to make things worse

Newspaper article

England may be one of the most fiscally centralised countries in the developed world, but local government still matters. English councils have budgets in excess of £50 billion. Not that you’d know it. Our political leaders seem to forget it all too easily.

I’ve read again the prime minister’s statement about reforms to social care funding. He did not even mention local councils. Yet it is they, not central government, that are responsible for providing, funding and administering most social care.

Local government has also been in the front line both in the response to Covid and dealing with its sometimes extreme financial consequences. Croydon and Slough have both issued so-called section 114 notices, indicating an inability to balance their budgets and the need to suspend all non-essential services. A number of other councils with specific exposures — Luton because it owns the airport, Eastbourne because of its dependence on tourism and conferences, for example — have had extraordinary additional support and borrowing powers granted. Across the sector, central government provided an additional £10 billion last year, with more available this year.

Future challenges may be less about adapting to Covid, though, than coming to terms with the last decade, a decade during which councils’ spending per person on services has been cut by a quarter. That’s worth repeating. Local authority spending per person has fallen by 25 per cent since 2010. There have been sweeping cuts to planning, economic development and leisure services. In stark contrast to the prime minister’s ambitions for “levelling up” councils in the poorest areas, the metropolitan boroughs and the north have suffered much sharper cuts in funding than the leafy parts of the home counties.

The medium-term challenges look tough indeed. First and foremost, demand for both adult and children’s social care is growing at 2 per cent a year or more. Rising wage costs — in part driven by increases in the minimum wage — and growing and ageing populations will put further pressure on services. Council tax will have to rise, and rise substantially, just to prevent services from deteriorating.

This isn’t just about quantum of money though. There are deeper structural problems. Council tax itself is outdated, regressive and in urgent need of reform. Reliance on council tax also benefits councils with more expensive properties. More than half of all properties in the northeast are in band A, the lowest band for council tax. That is true of only 10 per cent in London and the southeast. Each 1 per cent rise in council tax raises 30 per cent more revenue for the most affluent councils than it does for the most deprived. More central government cash will be needed if services are to be maintained in poorer areas.

Both government funding decisions over the past decade and the structure of council tax have worked against “levelling up”.

Then there’s the detail of how money is allocated to particular councils. Despite recent movements in the other direction, there is still a lot of redistribution that goes on to ensure that areas with greater need get a bigger share of the pot. There are formulae for working out who gets how much. Unfortunately, those formulae haven’t been revised in more than a decade. More shockingly, allocations are still based on 2013 data. The amount of money a council gets depends not on how many people currently live there, but on how many people lived there eight years ago. There has been a lot of change since then. At the extremes, the population of Tower Hamlets in London has grown by over 20 per cent since then while the population of Blackpool has dropped by 2 per cent. They are both treated as though nothing has changed. The population aged 80 or more, which really matters for determining social care needs, has dropped by 13 per cent in Barking and Dagenham and increased by 35 per cent in Hart, Hampshire. Funding does not recognise these changes.

The “fair funding” review, aimed at sorting out this mess, was launched fully six years ago. We were supposed to have a new system in place by April 2019. We still await any decisions. In the meantime council funding allocations become increasingly arbitrary. And as allocations increasingly diverge from anything remotely rational, so moving towards a more rational system becomes increasingly painful. Doing so will create big winners and losers.

Finally, there’s social care reform. The new system will have a significantly more generous means-test, and will ensure nobody who passes the separate care needs assessment will pay more than a total of £86,000 for their care. That will cost money. The government has pledged £1.8 billion a year for the next three years not just to fund these changes, but also to support workforce development and end the practice whereby councils are effectively subsidised by those paying privately. The latter frequently pay significantly more.

There is, though, a better than even chance that the funding that’s been allocated won’t be enough to achieve all this. Probably three times as much will be needed in the longer term. If the money isn’t enough then councils will probably do the only thing open to them: make the care needs assessment even more stringent. In other words, do even more to remove care from any but those with the most serious need. That’s already been the biggest effect of funding constraint: the number of older adults receiving free social care services over the last decade has plummeted. If that is what they end up having to do, this long awaited and sensible change to social care funding will have the unintended consequence of reducing support available to poorer pensioners in need of care.

Funding isn’t everything, but if you don’t provide enough of it you can do serious damage.

This article was first published in The Times and is reproduced here with kind permission.

More on this topic

External publication
David Phillips in the Municipal Journal on the need for clarity on local government funding in the upcoming Spending Review.
Press release
Looking ahead to the forthcoming Spending Review, this Green Budget chapter finds that relying on council tax alone to deal with funding pressures is unlikely to be sustainable.